Compliance extends ‘from the top of the house to ground level,’ Fed official says

Sarah Dahlgren, Executive VP of the Financial Institution Supervision Group of the Federal Reserve Bank of New York, said anti-money laundering (AML) and Bank Secrecy Act (BSA) compliance are areas that have not gottten enough attention, during and following the financial crisis. The decision of where to direct resources has often been to areas other than AML and BSA compliance and “increased attention and investment is obviously needed,” she said.

Dahlgren spoke at a seminar at the Institute of International Bankers in October. Her speech was released last week, and her remarksnoted the progress banks have made in rebuilding their capital and liquidity to be more resilient to stress in the future.

Speaking about the role of those a the top of companies, she said: “Weak BSA/AML compliance programs are often attributable to the failure by the boards of directors and senior management to actively and meaningfully promote AML compliance as a priority and take responsibility for it.”

A strong compliance culture starts at the top so a company can determine if it has one by answering just a few questions:

Do the directors/CEO set the right tone for behavior at the organization?

Is there effective challenge and debate at the baord meetings/committee meetings?

Do personalities interfere/get too big within the company for effective risk management? [I love this one. It’s hard to have room to talk about compliance issues when people are busy bragging about profits or beating the market, and it’s dangerous when certain people are perceived as ‘too important’ to have their actions questioned.]

What’s the dialogue like between supervisors and the firm?

Dahlgren said not every problem can be prevented with policies and procedures, but a company with a strong compliance culture will quickly identify new or unexpected problems and escalate them to be fixed immediately. It’s not only good news that must travel quickly in a business, she said.

Incentives can go a long way to set the right expectations for behavior, and the company should reward good behavior as much as it punishes the bad. “At the end of the day, culture is findamentally about people,” she said.

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Julie DiMauro is the executive editor of FCPA Blog and can be reached here.

Julie DiMauro is a contributing editor of the FCPA Blog. She writes best practice articles and speaks about compliance and risk issues in the financial services sector as part of the Regulatory Intelligence group at Thomson Reuters in New York.

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